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Reverse engineering retail - Wallace Cotton and the rewards of doing things differently Reverse engineering retail - Wallace Cotton and the rewards of doing things differently

E-commerce is big business. Just ask online-only retailers like Amazon, beauty products supplier Strawberrynet, and fashion marketplace ASOS. With everyone shopping online, retailers that don’t supplement their bricks-and-mortar stores with an e-commerce offering risk getting left behind.

But one Kiwi company is successfully bucking that trend. Wallace Cotton is a bed linen, clothing and homewares brand launched in 2006 by Paula and Bill Wallace. It began as an e-commerce site with a mail order catalogue distributed to a few hundred friends and family. A decade later, Wallace Cotton has a nationwide presence and is poised to open its eighth store, with a ninth in the pipeline.

"We were early adopters of e-commerce; online shopping was in its infancy in 2006," says Bill. "We've moved in the opposite direction to many retailers who had the bricks-and-mortar presence first. From day one, we focused on building a quality database of customers. Prior to this business, we designed and supplied bed linen to some major retail chains that started as mail-order, database companies, so we learnt how they did things. We knew that knowing our customers was vital to marketing to them effectively."

So why expand into traditional retail when others were moving online? Bill says customers began asking where they could see and feel the Wallace Cotton range. Six months after the first catalogue, Bill and Paula opened a tiny store in Birkenhead. The business grew steadily thanks to word of mouth and targeted magazine advertising. A year later, the pair doubled the size of their first store and, in 2009, took a short-term lease on a store in Newmarket to test the retail waters in the busy shopping district.

"Opening the Newmarket store coincided with the start of the GFC, but we did well and our confidence grew," says Bill. "We've since renewed the lease twice and Newmarket remains our highest grossing store."

Wallace Cotton now has branches in Wellington, Takapuna, Ponsonby, Napier, Albany and Cambridge, and a nationwide presence in homewares stores from Tauranga to Invercargill. Bill says the opening of Wallace Cotton's Ponsonby Central store in 2012 illustrated how its physical stores could become marketing tools.

"It's a very high-profile location and we saw a significant jump in brand recognition as a result. A lot of people said they didn't realise we even had physical stores."

The company's eighth store, soon to open at the new Northwest shopping centre, is a chance to test a mall location and introduce the brand to a new shopping demographic.

"When we open in a new location, we already have online customers in that area," Bill comments. "We survey our customers regularly and they always request more stores closer to where they are. That's why we opened in Napier last year - we knew we had a strong customer base in the Hawke's Bay. Again with Cambridge, we have a large Waikato customer base."

As more retail stores open, the online proportion of Wallace Cotton's total sales is dropping, but e-commerce currently accounts for around 23%.

"The web is still an important part of our future growth. These days, retailers need to be where their customers want them to be - whether that's online, mobile, or social media. It's a constantly changing landscape, and meeting customers' changing expectations is one of the challenges," explains Bill.

However, he believes that as long as they remain relevant and provide an experience customers can't get online, retail stores will continue to play an important role. "They need to inspire and delight," he says.

"There's evidence in the last 12 months of pure-play online retailers moving to open physical stores as well. The web is great but if you order something and you're not completely sure about the colour, fit, or texture, you have to go through the process of returning it," Bill explains. "Our stores and website work hand in hand. They support each other. Customers might research online and come into the store and purchase, or vice versa."

Hayes Knight Director Tristan Dean has overseen Wallace Cotton's accounting and advisory needs (including compliance, tax minimisation, structuring, asset protection, cashflow and growth management) since 2010. He says the Wallace Cotton story illustrates the benefits of planning for and managing growth.

"They've had some really impressive expansion and haven't been afraid to take a counter-cyclical approach. But they've done it in a methodical, well thought-out way," says Tristan. "They want to grow and increase their stock and product lines, but you need cash to do that. We've been advising them on efficient ways to structure their debt, getting maximum tax benefits out of their borrowings, and making sure they're always aware of and planning for the cash implications of their growth."

Wallace Cotton has considered opening physical stores in Australia where it also has online customers. But the challenging and competitive retail environment has made them wary.

"That doesn't mean we don't have international aspirations," Bill comments. "We're currently investigating an opportunity to distribute our range in China where there's growing demand for international-branded product. And in the medium to long term we'd like to replicate our business model, maybe in the UK."

Wallace CottonWallace Cotton Directors Bill and Paula Wallace

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